For-profit microlender in Mexico saving the poor

Mary Anastasia O’Grady has an excellent article, Markets for the Poor in Mexico on Compartamos Banco, a for-profit bank whose average loan size is $450. Compartamos Banco is a public company; do-gooders critize Compartamos Banco

What was once written off as an unviable market became a hot opportunity, and Compartamos was well positioned to capitalize on it in Mexico. Last year the company launched an initial public offering that was oversubscribed 13 times. That’s when the do-gooders stepped in to question the company’s ethics.

In a commentary published last June on the Compartamos IPO, Richard Rosenberg, a consultant for the Consultative Group to Assist the Poor – not part of the World Bank but housed on its premises – observes that the demand for shares in the company was driven, in part, by “exceptional growth and profitability.” He then ruminates for some 16 pages on whether Compartamos’s for-profit model is at odds with the goal of lifting the poor. A similar, though far less rigorous, challenge to Compartamos titled “Microloan Sharks” appears in the summer issue of the Stanford Social Innovation Review.

Demonstrate that you can make money by lending to the poor, and that the poor will profit from the loans, and get the doo-gooders upset.

Comments

For a few years, I was invested in a business called “First Cash Financial,” a pawn-shop chain with stores in the US Southwest and growing business in Mexico. What I learned while studying the business was that, when used responsibly, these shops function as micro-lenders for people with no credit or bad credit. In Mexico, they were genuinely filling an unmet need. What’s worse, from the bureaucrat/NGO point of view, is that these businesses help people become self-sufficient. No wonder they’re suspicious of them